Blistering AI demand drives a beat and raise at our other chipmaker Broadcom
What were the key factors that led to Broadcom's share price surge of over 14% in extended trading?
Broadcom's share price surged over 14% in extended trading due to several key factors:
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Better-than-expected quarterly results: Broadcom delivered strong financial performance in its fiscal 2024 second quarter, with revenue increasing 43% year over year to $12.5 billion, outpacing analysts' forecasts of $12.06 billion. Adjusted earnings per share grew 6% from last year to $10.96, exceeding expectations of $10.85.
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Strong AI and VMware demand: Broadcom's AI-related business saw a continued surge in sales, with management raising its full-year outlook to $11 billion, backing up the view that it is one of the best AI chip stocks in the market. The company's Infrastructure Software segment, which includes VMware, also reported revenue growth of 175% year over year to $5.3 billion.
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Full-year outlook raise: Broadcom increased its full-year revenue outlook to $51 billion, up from $50 billion previously, and adjusted EBITDA to approximately 61% of projected revenue, up from 60%. This positively revised update is above FactSet estimates of $50.58 billion in revenue and $30 billion of adjusted EBITDA.
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10-for-1 stock split: Broadcom announced a 10-for-1 forward stock split that will go into effect after the close of July 12, making the stock more accessible to investors and employees.
These factors combined to boost investor confidence in Broadcom's growth trajectory and potential for further success in the AI and software markets, leading to the significant share price surge.
What impact did the VMware acquisition have on Broadcom's financial results this quarter?
The acquisition of VMware had a significant positive impact on Broadcom's financial results this quarter. Broadcom's infrastructure software revenue, which includes VMware, more than doubled in the quarter to $5.29 billion, driven by the acquisition of VMware. This result came in well ahead of the Street's consensus estimate of $4.6 billion. Furthermore, VMware's revenue is one of the factors behind Broadcom's revised outlook for the full year. The strong results from the VMware acquisition helped Broadcom beat Wall Street's estimates for both revenue and adjusted EBITDA.
Can you detail the specific areas within Broadcom's semiconductor solutions where AI-related sales showed strength?
Broadcom's semiconductor solutions showed strength in AI-related sales in two main areas: networking and custom accelerators.
In networking, Broadcom's revenue increased by 44% year over year to $3.8 billion, making up 53% of semiconductor sales in the quarter. AI spending was the dominant theme here, with networking and custom accelerator revenue up 280% year over year to $3.1 billion. Broadcom operates an Ethernet network, which differs from Nvidia's InfiniBand solutions. The company has been benefiting from the increased demand for AI-related networking equipment as AI data center clusters continue to deploy.
On the custom chip side, Broadcom's hyperscale customers are accelerating investment to scale up the performance of their data center clusters. Although Broadcom doesn't call out its customers by name, it's widely believed that companies like Alphabet, Meta Platforms, and more recently, TikTok parent ByteDance, are the main customers for these custom AI accelerators.